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29 September 2008

PAQ International Holdings Limited (the 'company')

Interim Results for the six months ended 30 June 2008

Chairman's Statement

It gives me great pleasure to present the Company's interim results following its successful admission to AIM last February. This was an important development for the business as we work towards our goal of becoming one of the leading global brands in accessories for electronic products.  While it is difficult to ignore the difficult market conditions, we do not believe that recent market activity is a reflection of the significant progress we have made. The management is pleased with the progress the business is making and these results reflect the successful execution of the board's strategy in this first period since admission to AIM.  I would like to take this opportunity to thank our management team and staff for their enthusiasm and commitment to the Company in this exciting period of evolution.

Financial Overview

The Company underwent a corporate reorganisation and acquired the entire equity interests in PAQ Manufacturing Limited, a company incorporated in Hong Kong, through the issue of 103,850,000 ordinary shares of US$0.01 each to Mr. Yau Kwong Chi, Kelvin and Mr. Edmund Lui on 18 January 2008 (the 'Reorganisation'). The Company became the registered holder of the entire issued share capital of PAQ Manufacturing Limited. PAQ Manufacturing Limited in turn holds the entire equity interest in Hai Na Sporting Goods (Shenzhen) Company Limited and 51 per cent of the equity interest in Plato Leatherware Company Limited ('Plato'), a company incorporated in Hong Kong. On 11 June 2008, the Company acquired the remaining 49% equity interests in Plato Leatherware Company Limited at a cash consideration of approximately HK$9,901,000 and 8,772,000 issued shares of the Company. The Company and its subsidiaries are hereinafter collectively referred to as the 'Group'. Details of the Reorganisation are fully explained in the admission document of the Company dated 19 February 2008.

The Group resulting from the Reorganisation is regarded as a continuing entity. Accordingly, the business combination resulting from the Reorganisation has been accounted for using the principles of merger accounting. In applying the principles of merger accounting, the consolidated financial statements have been prepared as if the group structure after the completion of the Reorganisation had been in existence as at 1 January 2007 or since the date of incorporation where this is a shorter period. The acquisition of the businesses is accounted for using the purchase method. As such, the Group only consolidated the results of Plato from the date of acquisition of 51% interest in Plato.

Overall, the Group's financial performance during the six months period has shown a healthy and encouraging growth. Turnover for the six months ended 30 June 2008 grew to approximately HK$44,432,000 due primarily to strong demand from our growing customer base and the acquisition of Plato. Gross profit margin achieved during this period was approximately 18%. This is in line with the expectation of management but is lower than that of the same period in 2007 arising from the fact that the Group has only accounted for the result of Plato since the date of acquisition of 51% in Plato. Plato is principally engaged in the OEM business which has an overall lower gross profit margin as compared with that of the branding business of the Group.

During this period, we were unexpectedly asked to cover listing related expenses of approximately HK$9 million that had been set-off against the share premium account and were originally to have been met by one of the promoters of the Company's admission to AIM. Detailed original settlement method for the listing or admission related expenses are explained in the admission document of the Company dated 19 February 2008. In part settlement of her contractual obligations, the said investor has transferred 8.4 million shares of the Company into Treasury. The directors consider it necessary to provide impairment loss on the amount due from the said investor arising from listing related expenses that should be paid by the said investor at balance sheet date.  Further payment is due and the management is taking active steps to ensure that the debtor fulfils her contractual obligations. In particular, we intend to instruct the Company's solicitor to demand the debtor to repay certain listing expenses paid by the Company.

  Dividend

The Directors are not recommending the payment of an interim dividend at this time. It is the management's belief that the profits generated by the business can be more effectively deployed by investment in our operations to ensure the successful execution of the management's strategy, thereby maximizing the opportunity to create value for our shareholders. The Board is committed to an ongoing review of the Company's dividend policy.

Outlook and Future Prospects

We are continuing to enhance the PAQ brand, leveraging on our historical manufacturing strengths, in cases and bags for electronics products and accessories. We have also continued to develop our retail strategy.

The recent purchase of the residual minority interests in Plato has added momentum to our continued growth in the Greater China Region and has enabled us to further integrate its international customer base, increasing market opportunities for our branded products. We are also continuing to develop our expertise in producing high quality, reliable and innovative products. To maintain flexibility and our advantage as a low cost manufacturer and to cope with the growth of our business, we continually review the efficiency and control of our production facilities. This means that we also remain open to the relocation of our production facilities in order to allow us to enhance our competitiveness.

In the coming years we intend to seek a sales and distribution network throughout the Greater China region to meet the needs of increasingly affluent Chinese consumers who are now demanding higher quality accessories. Both domestically and internationally, and with the anticipated launch of a new product group towards the end of 2008, we are confident in the Group's long-term growth potential.

We are proceeding with the development of our core business in manufacturing cases and bags for electronic bags and accessories and we are enhancing our reputation for producing high quality, reliable and innovative products. We have opened 14 retail points of distribution in both Beijing and Shanghai during the last six months and we are pleased to report that to date they have each been trading profitably and performance to date has been exceeding initial management expectations. We are accordingly evaluating new possible locations for our outlets. This past July, we also finalized an agreement to open dedicated outlets in Suning Appliance stores - China's second largest electronics retailer with over 600 retail locations in China. We intend to develop these outlets as the growth of the business permits.

We are further developing the value of our brand by improving the profit potential of our product mix for retailers. We have focused on releasing products with better margins and through our China retail channel we will significantly increase our share of total distribution channel profits. A recent test initiative has shown promise in optimizing product mix and tailored products to develop the profitability of select clients. Working with a leading European design group, we anticipate that we can further enhance operating margins by streamlining our product mix with custom components tailored to specific geographic markets and tastes.

Although prospects in the long term are positive, we are cautious in the short term given difficulties in the global economy and are currently working with clients to develop strategies that reflect the deteriorating conditions in some markets while deferring the implementation of any contracts that might include immediate substantial financial outlay.  China, of course, is a continually expanding market and we are focusing much of our efforts there.

Following our admission to AIM, we are continuing to focus resources on selectively building out our distribution channel and improve services to our existing international retail partners and retail outlets throughout China.

The Company is continuing its previously announced negotiations regarding the grant to it of an exclusive license to market its brand with football players in respect of bags and related products for the global market. Management believes this has the potential to generate significant publicity and brand recognition in the lead up to the World Cup in South Africa in 2010.

We believe that the unprecedented success of the recent Beijing Olympics continues to highlight the re-emergence of China as a global force in economics, culture and politics. With the market opportunities that are now available to us, we believe we are well positioned to both grow with the increasing middle class in China and to improve our market share internationally.

Appreciation

Finally, I would like to take this opportunity to thank the Group's shareholders and business partners for their support and encouragement for the Group during the past period. I would also like to thank our Directors and all staffs for the hard work and contribution to the Group.

Kelvin Kwong Chi Yau

Chairman and Chief Executive Officer

Hong Kong, 29 September 2008

Contact

Kelvin Yau, Chief Executive	+(852) 9135 1811
PAQ International Holdings
www.paq-intl.com
Dominique Doussot /Jonathan Evans	+44 (0) 207 060 1760
Zimmerman Adams International Ltd

  CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2008    

			Six months ended
			30 June
	Notes		2008		2007
			HK$'000		HK$'000
			(Unaudited)		(Unaudited)
Revenue	3		44,432		11,846
Cost of sales			(36,452)		(8,846)
Gross profit			7,980		3,000
Other income			5,663		7,576
Distribution costs			(1,493)		(295)
Administrative expenses			(3,386)		(2,156)
Other operating expenses			(4,473)		(743)
Profit from operations			4,291		7,382
Finance costs	4(a)		(292)		(359)
Profit before income tax	4		3,999		7,023
Income tax expense	5		(506)		(1,200)
Profit for the period			3,493		5,823
Attributable to:
Equity holders of the Company			2,483		5,823
Minority interests			1,010		-
			3,493		5,823
Dividends	6		-		10,000
Earnings per share (HK cents)	7
- basic			2.13		5.60
- diluted			2.13		N/A

  CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2008    

			30 June		31 December
	Notes		2008		2007
			HK$'000		HK$'000
			(Unaudited)		(Unaudited)
Non-current assets
Goodwill	8		16,675		-
Property, plant and equipment	9		1,774		1,586
			18,449		1,586
Current assets
Inventories			2,758		4,735
Trade and other receivables	10		25,997		22,478
Pledged bank deposits			547		543
Bank and cash balances			718		49
			30,020		27,805
Current liabilities
Trade and other payables	11		10,000		7,837
Obligation under finance leases			353		-
Income tax payable			4,906		4,400
Bank borrowings	12		8,283		7,802
			23,542		20,039
Net current assets			6,478		7,766
Total assets less current liabilities			24,927		9,352
Non-current liabilities
Bank borrowings	12		-		9
Net assets			24,927		9,343
Capital and reserves
Share capital	13		10,085		-
Reserves			14,842		9,343
Equity attributable to equity holders of the Company			24,927		9,343
Minority interests			-		-
Total equity			24,927		9,343

  CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2008    

		Attributable to equity holders of the Company
		Reserves
	Share capital	Share premium	Treasury shares	Share options reserve	Merger reserve	Shareholder’s contribution	Translation reserve	Retained profits	Total reserves	Minority interests	Total
	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000	HK$'000
At 1 January 2007	-	-	-	-	-	-	-	6,353	6,353	-	6,353
Profit for the period	-	-	-	-	-	-	-	5,823	5,823	-	5,823
Total recognised income for the period	-	-	-	-	-	-	-	5,823	5,823	-	5,823
At 30 June 2007 (Unaudited)	-	-	-	-	-	-	-	12,176	12,176	-	12,176
At 1 January 2008	-	-	-	-	-	-	-	9,343	9,343	-	9,343
Exchange differences on translation of foreign operations	-	-	-	-	-	-	35	-	35	-	35
Net income directly recognised in equity	-	-	-	-	-	-	35	-	35	-	35
Profit for the period	-	-	-	-	-	-	-	2,483	2,483	1,010	3,493
Total recognised income for the period	-	-	-	-	-	-	35	2,483	2,518	1,010	3,528
Arising from Reorganisation (Note (i))	8,100	-	-	-	(8,091)	-	-	-	(8,091)	-	9
Issue of shares	1,300	14,160	-	-	-	-	-	-	14,160	-	15,460
Expenses incurred in    connection with the    issue of shares    (Note (ii))	-	(9,021)	-	-	-	9,021	-	-	-	-	-
Recognition of equity    settled share based    payments (Note (iii))	-	(670)	-	670	-	-	-	-	-	-	-
Purchase of own shares  and held as treasury shares	-	-	(6,271)	-	-	-	-	-	(6,271)	-	(6,271)
Acquisition of additional interest in a subsidiary	685	3,183	-	-	-	-	-	-	3,183	(1,010)	2,858
At 30 June 2008 (Unaudited)	10,085	7,652	(6,271)	670	(8,091)	9,021	35	11,826	14,842	-	24,927

 

Notes:

(i)     The merger reserve of the Group represents the difference between the nominal value of share capital of a subsidiary acquired pursuant to Reorganisation in January 2008 and the nominal value of the share capital issued by the Company as consideration for the reorganisation of business under common control.

(ii)    The Company entered into an agreement with Mr. Yau Kwong Chi, Kelvin and Madam Ng Oi Chun, Patty on 28 November 2007 in connection with the expenses incurred by the Company in relation to the admission to AIM and the related placing of shares. Under the terms of this agreement, Madam Ng Oi Chun, Patty agreed to take responsibility for the payment of all professional fees incurred by the Company in connection with the admission to AIM and placing of shares. In return, Mr. Yau Kwong Chi, Kelvin transferred a total of 26,272,500 ordinary shares of the Company to Madam Ng Oi Chun, Patty and nominees. 

(iii)    On 19 February 2008, the Company granted an option to subscribe for 1,205,166 ordinary shares of the Company to each of Zimmerman Adams International Limited, the nominated adviser and broker of the Company, and Hichens, Harrison & Co. plc, the co-broker of the Company, in connection with the placing of shares and admission to AIM. The share options will expire on 24 February 2013 and have an exercise price of GBP0.06 per share.

  CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2008        

			Six months ended
			30 June
	Notes		2008		2007
			HK$'000		HK$'000
			(Unaudited)		(Unaudited)
Cash flows from operating activities
Profit before income tax			3,999		7,023
Adjustments for:
Interest income			(5)		(9)
Interest expenses			292		359
Depreciation			364		310
Impairment loss on other receivables			1,526		-
Operating profit before changes in working capital			6,176		7,683
Decrease in inventories			1,977		2,541
Increase in trade and other receivables			(6,969)		(6,460)
Decrease in trade and other payables			(3,440)		(4,820)
Cash used in operations			(2,256)		(1,056)
Interest paid			(265)		(359)
Net cash used in operating activities			(2,521)		(1,415)
Cash flows from investing activities
Purchase of property, plant and equipment			(83)		(63)
Acquisition of a subsidiary, net of cash acquired	14		(2,656)		-
Acquisition of additional interest in a subsidiary	14		(9,901)		-
Interest received			5		9
Increase in pledged bank deposits			(4)		(9)
Net cash used in investing activities			(12,639)		(63)
Cash flows from financing activities
Proceeds from issue of ordinary shares			15,460		-
Repayments of bank borrowings			(53)		(137)
Interest paid			(27)		-
Repayment of obligation under finance leases			(67)		-
Net cash generated from / (used in) financing activities			15,313		(137)
Net increase / (decrease) in cash and cash equivalents			153		(1,615)
Effect of foreign exchange rate changes			(9)		-
Cash and cash equivalents at the beginning of the period			(7,644)		(5,937)
Cash and cash equivalents at the end of the period			(7,500)		(7,552)
Analysis of cash, cash equivalents and bank overdrafts
Bank and cash balances			718		387
Bank overdrafts			(8,218)		(7,939)
			(7,500)		(7,552)

  NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2008    

1.    GENERAL 

PAQ International Holdings Limited (the 'Company') was incorporated in the Cayman Islands on 23 November 2007 as an exempted company with limited liability under the Companies Law of the Cayman Islands. The Company is domiciled in the Cayman Islands and has its registered office at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands and principal place of business at Room 2, 12th Floor, Hung Tai Industrial Building, No. 37-39 Hung To Road, Kwun Tong, Kowloon, Hong Kong. On 25 February 2008, the Company was admitted to the Alternative Investment Market ('AIM') operated by the London Stock Exchange plc.

The principal activity of the Company is investment holding. The principal activities of its major subsidiaries are design and vertically integrated manufacturing of branded 'softwear' for electronic products and accessories and trading of OEM products. The Company and its subsidiaries are collectively referred to as the 'Group' in these condensed consolidated financial statements.

The Company underwent a corporate reorganisation and acquired the entire equity interests in PAQ Manufacturing Limited, a company incorporated in Hong Kong, through the issue of 103,850,000 ordinary shares of US$0.01 each to Mr. Yau Kwong Chi, Kelvin and Mr. Edmund Lui on 18 January 2008 (the 'Reorganisation'). The Company became the registered holder of the entire issued share capital of PAQ Manufacturing Limited. PAQ Manufacturing Limited in turn holds the entire equity interests in Hai Na Sporting Goods (Shenzhen) Company Limited, and 51 per cent. of the equity interests in Plato Leatherware Company Limited, a company incorporated in Hong Kong. Details of the Reorganisation are fully explained in the admission document of the Company dated 19 February 2008.

The Group resulting from the Reorganisation is regarded as a continuity entity. Accordingly, the business combination resulting from the Reorganisation has been accounted for using the principles of merger accounting. In applying the principles of merger accounting, the consolidated financial statements have been prepared as if the group structure after the completion of the Reorganisation had been in existence as at 1 January 2007 or since date of incorporation where this is a shorter period.

The condensed consolidated financial statements of the Company for the six months ended 30 June 2008 are unaudited and have been prepared in accordance with International Accounting Standard ('IAS') 34 'Interim Financial Reporting'. 

The financial statements have been prepared in Hong Kong dollar ('HK$'), which is the same as the functional currency of the Company.

2.    SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost convention except for certain financial instruments, which are measured at fair values.

The accounting policies adopted are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2007.

  

    

Business combinations

The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Goodwill

Goodwill arising on an acquisition of a subsidiary represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on an acquisition of a subsidiary is presented separately in the consolidated balance sheet. 

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

  

    

In the current period, the Group has applied, for the first time, amendment of IAS, International Financial Reporting Standards ('IFRS') and the related Interpretations ('IFRICs') (hereinafter collectively referred to as 'new IFRSs'), which are effective for the Group's financial year beginning on 1 January 2008. The adoption of the new IFRSs has no material effect on the results and financial position for the current and prior accounting periods. Accordingly, no prior period adjustment is required.  

The Group has not early adopted the following new and revised standards or interpretations that have been issued but are not yet effective. The Company has already commenced an assessment of the impact of these new IFRSs but is not yet in a position to state whether these IFRSs would have a significant impact on its results of operations and financial position. 

    

IAS 1 (Revised)	Presentation of Financial Statements 2
IAS 23 (Revised)	Borrowing Costs 2
IAS 27 (Revised)	Consolidated and Separate Financial Statements 1
IAS 32 and IAS 1 (Amendment)	Puttable Financial Instruments and Obligations    Arising on Liquidation 2
IFRS 2 (Amendment)	Share-based Payment - Vesting Conditions and Cancellations 2
IFRS 3 (Revised)	Business Combinations 1
IFRS 8	Operating Segments 2
IFRIC 13	Customer Loyalty Programmes 4
IFRIC 15	Agreements for the Construction of Real Estate 2
IFRIC 16	Hedges of a Net Investment in a Foreign Operation 3

Notes:

1 Effective for annual periods beginning on or after 1 July 2009.

                2 Effective for annual periods beginning on or after 1 January 2009. 

3 Effective for annual periods beginning on or after 1 October 2008.

4 Effective for annual periods beginning on or after 1 July 2008.

  

3.    REVENUE

    The Group is engaged in design and vertically manufacturing of branded 'softwear' for electronic products and accessories and trading of OEM products.

Revenue represents the sales value of goods supplied to customers.

		Six months ended
		30 June
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Sales of goods		44,432		11,846

4.    PROFIT BEFORE INCOME TAX

		Six months ended
		30 June
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Profit before income tax has been arrived at after charging (crediting):
(a)     Finance costs:
Interest on finance leases		9		-
Interest on bank loans		14		16
Interest on bank overdrafts		265		324
Interest on discounted bills		4		19
		292		359

(b)     Staff costs, excluding directors' remuneration (Note (i)):
Salaries, wages and other benefits		3,795		2,512
Retirement scheme contributions		140		45
		3,935		2,557

  

4.    PROFIT BEFORE INCOME TAX (CONTINUED)

		Six months ended
		30 June
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
(c)    Other items:
Directors' remuneration
- fees		-		-
- other emoluments		599		120
- retirement scheme contributions		4		6
Impairment loss on other receivables		1,526		-
Cost of inventories (Note (ii))		36,452		8,846
Depreciation of property, plant and equipment		364		310
Net foreign exchange losses / (gains)		425		(104)
Operating lease rentals in respect of rented premises		595		346
Research and development costs		243		225

    Note:

    (i)     Staff costs include approximately HK$243,000 (for the six months ended 30 June 2007: HK$225,000) relating to research and development costs disclosed separately in Note 4(c).

    (ii)     Cost of inventories includes approximately HK$2,310,000 (for the six months ended 30 June 2007: HK$1,399,000) relating to operating lease charges, staff costs and depreciation, which are included in the respective total amounts disclosed separately above or in Note 4(b) for each of these types of expenses.

5.    INCOME TAX EXPENSE

		Six months ended
		30 June
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Current income tax
- Provision for Hong Kong profits tax for the period		506		1,200

Hong Kong profits tax is provided at the rate of 16.5% (for the six months ended 30 June 2007: 17.5%) on the Group's estimated assessable profits arising in or derived from Hong Kong for the six months ended 30 June 2008.

Pursuant to relevant laws and regulations in the People's Republic of China ('PRC'), the Group's PRC subsidiary is exempted from PRC enterprise income tax for the two years from the first profit-making year and thereafter is entitled to a 50% relief from PRC enterprise income tax for the following three years. The PRC subsidiary was in its third profit-making year for the six months ended 30 June 2008.

  

6.    DIVIDENDS

		Six months ended
		30 June
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Interim dividend declared and paid		-		10,000

No dividend has been paid or declared by the Company since the date of its incorporation. For the six months ended 30 June 2007, the dividend was paid by PAQ Manufacturing Limited, a wholly-owned subsidiary of the Company, to their then shareholders prior to the Reorganisation.

7.    EARNINGS PER SHARE 

The calculation of basic earnings per share for the six months ended 30 June 2008 is based on the Group's profit attributable to shareholders of approximately HK$2,483,000 (for the six months ended 30 June 2007: HK$5,823,000) and the weighted average number of 116,352,458 (for the six months ended 30 June 2007: 103,850,010) ordinary shares deemed to be in issue on the assumption that the Reorganisation had been completed on 1 January 2007.

The share options outstanding during the six months ended 30 June 2008 had an anti-dilutive effect on the basic earnings per share for the period. No diluted earnings per share have been disclosed as there were no dilutive potential ordinary shares in existence for the six months ended 30 June 2007. 

8.    GOODWILL

		HK$'000
COST
Acquired during the period (Note 14)		16,675
At 30 June 2008 (Unaudited)		16,675

9.    PROPERTY, PLANT AND EQUIPMENT

    During the six months ended 30 June 2008, the Group spent approximately HK$83,000 (for the six months ended 30 June 2007: HK$63,000) on the acquisition of property, plant and equipment.

  

10.    TRADE AND OTHER RECEIVABLES

		30 June		31 December
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Trade receivables		8,651		922
Less: Allowance for doubtful debts		(240)		(240)
		8,411		682
Other receivables		16,162		18,789
Prepayments and deposits		204		141
Amount due from a related company		1,220		2,866
		25,997		22,478

An ageing analysis of trade receivables (net of allowance for doubtful debts) at the balance sheet date is as follows:

    

		30 June		31 December
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Less than 1 month past due		7,539		453
1 month to 3 months past due		521		33
More than 3 months but less than 1 year past due		158		33
Over 1 year past due		193		163
Amounts past due		8,411		682

            

    Trade receivables are due upon the date of billing.

11.   TRADE AND OTHER PAYABLES

		30 June		31 December
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Trade payables		2,387		4,374
Other payables and accrued charges		6,092		2,021
Deposits received		1,189		294
Amount due to a related company		332		34
Amount due to a director		-		1,114
		10,000		7,837

            

  

12.   BANK BORROWINGS

    At the balance sheet date, the bank borrowings were repayable as follows:

    

		30 June		31 December
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Within 1 year or on demand		8,283		7,802
After 1 year but within 2 years		-		9
		8,283		7,811

    

At the balance sheet date, the bank borrowings were analysed as follows:

    

		30 June		31 December
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Bank overdrafts		8,218		7,693
Bank loans		65		118
		8,283		7,811

    

The Group's interest-bearing borrowings bear interest ranging from 6.75% to 8.25% (for the year ended 31 December 2007: 8.25% to 9.25%) per annum.

    

    The details of security of the bank borrowings are disclosed in Note 15.  

13.    SHARE CAPITAL

		Par	Number of
	Notes	value	Shares		Amount
		US$			HK$'000
Authorised share capital
At 1 January 2008	(i)	0.10	500,000		390
Sub-division of the par value of  ordinary shares of US$0.10 to  US$0.01 each	(ii)		4,500,000		-
		0.01	5,000,000		390
Increase during the financial period	(ii)	0.01	295,000,000		23,010
At 30 June 2008 (Unaudited)			300,000,000		23,400
Issue and fully paid
At 1 January 2008	(i)	0.10	1		-
Sub-division of the par value of  ordinary shares of US$0.10 to  US$0.01 each	(ii)		9		-
		0.01	10		-
Issue of shares upon Reorganisation	(iii)	0.01	103,850,000		8,100
Issue of shares upon placing	(iv)	0.01	16,666,667		1,300
Issue of shares for acquisition of  additional interest in a subsidiary	(v)	0.01	8,772,000		685
At 30 June 2008 (Unaudited)			129,288,677		10,085

Notes:

(i)    The Company was incorporated on 23 November 2007, on which date the authorised share capital was US$50,000 divided into 500,000 ordinary shares of US$0.10 each, 1 of which was issued at par for cash.

(ii)    On 18 January 2008, (i) issued and unissued shares of the Company were sub-divided into 10 shares of US$0.01 each such that the authorised share capital of the Company became US$50,000 divided into 5,000,000 ordinary shares; and (ii) the authorised share capital of the Company was increased to US$3,000,000 by the creation of 295,000,000 new ordinary shares.

(iii)    On 18 January 2008, the Company underwent the Reorganisation and acquired the entire equity interests in PAQ Manufacturing Limited, a company incorporated in Hong Kong, through the issue of 103,850,000 ordinary shares of US$0.01 each to Mr. Yau Kwong Chi, Kelvin and Mr. Edmund Lui. 

(iv)    On 25 February 2008, 16,666,667 new ordinary shares of US$0.01 each of the Company were issued at GBP0.06 per share by way of placing of shares. 

(v)    On 11 June 2008, the Group acquired the remaining 49% equity interests in Plato Leatherware Company Limited at a cash consideration of approximately HK$9,901,000 and 8,772,000 issued shares of the Company.

All the new shares issued during the financial period rank pari passu in all respects with the existing shares of the Company.

  

14.    ACQUISITION OF A SUBSIDIARY

On 18 January 2008, PAQ Manufacturing Limited, a wholly owned subsidiary of the Company, acquired 51% equity interests in Plato Leatherware Company Limited at a cash consideration of HK$2,448,000. On 11 June 2008, PAQ Manufacturing Limited further acquired the remaining 49% equity interests in Plato Leatherware Company Limited at a cash consideration of approximately HK$9,901,000 and 8,772,000 issued shares of the Company. Plato Leatherware Company Limited became a wholly owned subsidiary of the Company thereafter. 

The net liabilities acquired on 18 January 2008 and the goodwill arising are as follows:

		Acquiree's carrying amount before combination and fair value
		HK$'000
		(Unaudited)
Net assets / (liabilities) acquired:
Property, plant and equipment		5
Trade and other receivables		4,338
Bank and cash balances		6
Trade and other payables		(5,603)
Bank overdrafts		(214)
Net liabilities acquired		(1,468)
Goodwill		3,916
		2,448

Total consideration satisfied by:
Cash		2,448

Net cash outflow arising on acquisition:

Cash consideration paid		2,448
Bank balances and cash, bank overdrafts acquired		208
		2,656

  

14.    ACQUISITION OF A SUBSIDIARY (CONTINUED)

After the completion of the acquisition of the remaining 49% equity interests in Plato Leatherware Company Limited on 11 June 2008, the goodwill arising are as follows: 

		HK$'000
		(Unaudited)
Purchase consideration:
Cash consideration		9,901
Fair value of 8,772,000 issued shares of the Company		3,868
		13,769
Acquisition of additional interest in a subsidiary from minority shareholder		(1,010)
Goodwill arising		12,759
Goodwill arising from acquisition on 18 January 2008 - shown as above		3,916
Total goodwill (Note 8)		16,675

15.    BANKING FACILITIES 

The Group had general banking facilities granted by banks to the extent of approximately HK$10,300,000 (as at 31 December 2007: HK$10,300,000) as at 30 June 2008. The banking facilities were secured by the following:

a)     Personal guarantees provided by the directors of the Company;

b)     Pledge of fixed deposits of the Group and a close family member of a director of PAQ Manufacturing Limited, a subsidiary of the Company; and

    c)    Pledge of a property of a related company, Triple Grand Limited ('Triple'). Triple is related to the Group by virtue of the interests of Mr. Yau Kwong Chi, Kelvin. The share capital of Triple is directly held by Mr. Yau Kwong Chi, Kelvin, director of the Company.

  

16.    COMMITMENTS

• Capital commitments outstanding at the balance sheet date not provided for in the condensed consolidated financial statements were as follows:

		30 June		31 December
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Contracted for		-		293

    (b)    At the balance sheet date, the total future minimum lease payments under non-cancellable

        operating leases are payable as follows:

		30 June		31 December
		2008		2007
		HK$'000		HK$'000
		(Unaudited)		(Unaudited)
Within 1 year		884		833
After 1 year but within 5 years		1,593		1,760
		2,477		2,593

    

The Group is the lessee in respect of a number of properties and an item of office equipment held under operating leases. The leases typically run for an initial period of two to five years, with an option to renew the lease when all terms are renegotiated. None of the leases includes contingent rentals.

  

17.    SIGNIFICANT RELATED PARTY TRANSACTIONS

(a)    Save as disclosed elsewhere in the interim financial statements, the Group had the following significant related party transactions during the period ended 30 June 2008:

			Six months ended
			30 June
	Notes		2008		2007
			HK$'000		HK$'000
			(Unaudited)		(Unaudited)
Licensing income received from  Riverstone Manufacturing Limited  ('Riverstone')	(i)		500		750
Management income received from  Riverstone	(ii)		14		355
Sales of goods to Riverstone	(iii)		-		27

(b)    Key management personnel remuneration

    The remuneration of directors and other members of key management during the period     was as follows:

			Six months ended
			30 June
			2008		2007
			HK$'000		HK$'000
			(Unaudited)		(Unaudited)
Short-term employee benefits			599		120
Post-employment benefits			4		6
			603		126

        Total remuneration is included in directors' remuneration (Note 4(c)).

   

17.    SIGNIFICANT RELATED PARTY TRANSACTIONS (CONTINUED)

(c)    At the balance sheet date, the Group had the following balances with related parties: 

			Six months ended
			30 June
	Notes		2008		2007
			HK$'000		HK$'000
			(Unaudited)		(Unaudited)
Amount due from a related company Riverstone	(iv)		1,220		2,866
Maximum balance due from  Riverstone			2,866		5,616
Amount due to a related company One Plus Manufacturing Limited ('One Plus')	(v)		332		34
Amount due to a director Mr. Yau Kwong Chi, Kelvin	(vi)		-		1,114

    Notes:

    (i)     The licensing income was charged at prices and terms mutually agreed by both parties.

    

    (ii)     The management income was charged on a cost reimbursement basis.

    

    (iii)     The sales were made at prices and terms mutually agreed by both parties.

     (iv)    Riverstone is related to the Group by virtue of the interests of Mr. Edmund Lui and Mr. Yau Kwong Chi, Kelvin. The share capital of Riverstone is directly held by Mr. Edmund Lui and Mr. Yau Kwong Chi, Kelvin, directors of the Company. The amount due is unsecured, interest-free and has no fixed terms of repayment.

    

    (v)    One Plus is related to the Group by virtue of the interests of Mr. Edmund Lui and Mr. Yau Kwong Chi, Kelvin. The share capital of One Plus is directly held by Mr. Edmund Lui and Mr. Yau Kwong Chi, Kelvin, directors of the Company. The amount due is unsecured, interest-free and has no fixed terms of repayment.

    (vi)    The amount due is unsecured, interest-free and has no fixed terms of repayment.

------ End of Notes ------

ENDIR FKCKQFBKKPCB